Unit 10

May is one of three limited partners in a limited partnership. Each limited partner made a capital contribution of $50,000. Assume there is a judgment against the partnership for $300,000 and that both the partnership and the general partner are insolvent. What is the maximum amount that May will have to pay on the judgment?

$50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that.

The maximum number of shareholders a Subchapter S corporation may have is

100

The AMJ Partnership has 3 partners: Amy, who made a 60,000 capital contribution; May, who made a 20,000 capital contribution; and June, whose capital contribution was 10,000. The partnership agreement is silent about how profits will be divided. If the partnership makes 90,000 in profits, how will it be distributed?

30,000 each to Amy, May and June

Which of the following is NOT one of the recognized disadvantages of doing business as a corporation?

A corporation can be in existence for a maximum of 99 years

Which of the following is not required to create a partnership?

A written agreement between the parties.

Which of the following is not required to create a partnership?

A written agreement between two parties

Phil has a 1/4 partnership interest in Green & Sons. He has been denied access to the partnership books and records for over a year and he suspects that one of the partners has been engaging in secret business transactions using partnership funds. Phil wants to know the status of the business. Phil's remedy in this situation is to go to a court of equity for an ______________.

Accounting

John was a limited partner in Commercial Properties Limited. When the general partner became ill, John took over all the management duties of Commercial Properties. Ace Office Equipment, a supplier of Commercial Properties, is suing Commercial Properties over several months of unpaid bills. Under modern laws governing the operation of limited partnerships, which of the following statements best describes John's personal liability for Commercial's debt to Ace Office Equipment?

Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties.

Which of the following decisions would require a unanimous vote of the partners?

Admitting a new partner into the partnership

Subchapter S corporation will avoid double taxation only if which of the following applies?

All the shareholders agree to be taxed as in a partnership.

Which of the following statements about the rights and duties of doctors who practice medicine in a professional corporation is true?

Are eligible to participate in tax advantaged pension plans

The purpose of a buy and sell agreement is to

Arrange for the evaluation of the business and the method for financing the purchase of a withdrawing or deceased partner's interest.

The written agreement between two or more persons that creates a partnership and sets for the rights and duties of each partner is the ____

Articles of partnership

Bill is a limited partner in K&L Limited Partnership. Which of the following statements about his partnership interests is false?

Bill has a right to make management decisions for K&L

A partnership that fails to comply with a state assumed name statute

Both A and C Will not be able to use the courts of the state to sue its debtors May exposed the partners to criminal liability

The agreement among the partners that spells out how the firm's assets will be valued and how the interests of a retiring or deceased partner will be bought out is a(n) ___________________ agreement.

Buy and sell

The court order directing that the share of profits due a partner be given to his or her creditor to satisfy a judgment is a _________________order.

Charging

Which of the following best describes the "double taxation" on corporate profits?

Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends as personal income

Jay, who is a partner in an accounting firm, is being sued for malpractice by a client. If the jury finds for the client, which of the following parties will have liability on the judgment? (select all the correct answers) Each of the other partners individually Each of the employees of the partnership individually Jay individually The partnership as an entity

Each of the other partners individually Jay individually The partnership as an entity

Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business.

False

In a limited partnership LP, what are the partners who have unlimited personal liability for the debts of the LP?

General Partners

Which business entity is defined as "an association of two or more owners who carry on as co-owners a business for profit?"

General partnership

If a partnership agreement does not say how losses will be shared, they will be shared

In whatever way the profits are shared.

Which of the following statements about a joint venture is true?

Individuals form it to conduct a single, or very limited, business activity

Which of the following is NOT a recognized advantage of doing business as a corporation? Investors have extremely limited liability for the debts of a corporation A corporation can have perpetual existence A corporation does not have to report income for corporate revenue Usury laws do not apply to corporations

Investors have extreme;y limited liability for the debts of a corporation A corporation can have perpetual existence Usury laws do not apply to corporations

Which of the following is/are a recognized advantage of doing business as a corporation?

Investors have extremely limited liability for the debts of the corporation. A corporation can have perpetual existence. Usury laws do not apply to corporations.

Partnership agreements often fund the purchase of a deceased partners' partnership interests with

Life insurance policies

Megan has joined Alliance Partners, making a 50,000 capital contribution. Alliance has been in business for 10 years and Megan is worried about her liability for pre-existing debts. Which statement best describes her liability for the debts Alliance had when she joined the partnership?

Megan has no personal liability for the debts, but her entire capital contribution may be used to satisfy them

Peter, Paul and John, who were licensed pharmacists, formed a partnership to purchase and run a small drugstore chain. Each held a 13 interest in the partnership. When Paul died his wife Ellen began receiving annuity payments equal to 13 of the partnership's net profits. The payments were to last for 3 years. Ellen is also a licensed pharmacist and perfectly capable of performing all the duties that Peter, Paul and John performed. She claims that under partnership law both her right to receive a share of net profits and her expertise in the field are prima facie evidence that she is a partner in the firm. Is Ellen correct?

No, paying a surviving spouse an annuity out of net profits is not prima facie evidence of partnership.?

Corporations are said to have a burden of "double tax" because

Profits are taxed at the corporate level as income and again at the shareholder level as dividends

Which of the following statements about the taxation of corporations is false?

Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule.

Another name for a tax option corporation is a

Subchapter S corporation

What is another name for a Subchapter S corporation?

Tax option corporation

A partnership need not give public notice of its dissolution if the dissolution was caused by ...

The bankruptcy of a partner

Which of the following is not normally included in the partnership agreement?

The daily work schedule for each partner

Which of the following statements is true about a partnership name? (select all the correct answers) The name must include the word "company" in it. The partnership must comply with the state's assume name provisions. The name is an asset of the partnership that may be sold or assigned. The name must comply with the Federal patent provisions.

The name is an asset of the partnership that may be sold or assigned. The partnership must comply with the state's assume name provisions.

Which of the following statements about proprietorships is true? Proprietorships are taxable entities apart from the owners. A business can have up to thirty-five owners and still be a proprietorship. A proprietorship cannot generate more than 10 million in proceeds per tax year. The owner of a proprietorship is personally liable for all the debts of the proprietorship. The owner of a proprietorship is personally

The owner of a proprietorship is personally liable for all the debts of the proprietorship.

Which of the following would bring about the dissolution of the partnership? (select all the correct answers) All of the partners agree to end the partnership The time the partnership is to last, as stated in the partnership agreement, has expired One of the partners dies. The partnership files for bankruptcy.

The time the partnership is to last, as stated in the partnership agreement has expired All of the partners agree to end the partnership One of the partners dies.

Which of the following statements about LLC's is false?

There is an extensive body of law based on court decisions governing LLC's.

Bob, Sue and Jim were classmates in medical school who formed a professional corporation to practice medicine. Which of the following statements about their professional corporation is false?

They will be protected from suits for medical malpractice.

A sole proprietorship is not a taxable entity; all profits or losses are reported and taxed as individual income.

True

An advantage to doing business as a corporation is that ownership interests can be transferred without impact on day-to-day business operations.

True

Under RUPA, a partnership may take title to real property as a tenancy in partnership.

True

if net profits are retained in a subchapter s corporation, income tax must be paid by shareholders on these earnings even though the earnings have not yet been received.

True

Bob and Sue, who are both attorneys, agreed to share office space and other overhead expenses in order to save money. They did not agree to form a partnership. They do not share profits or losses and neither has a say in the management of the other's business. The sign outside their door, and on their common letterhead, reads: "Bob Smith and Sue Jones, Attorneys at Law." Using this stationary, Bob purchased office equipment from Smart Buy. Sue at no time used the equipment and did not enter into the contract with Smart Buy. Bob did not pay for the equipment and Smart Buy wants to hold Sue liable. Is Sue liable as a partner for this purchase? Group of answer choices

Yes, allowing her name to be used with Bob's in the same letterhead created a partnership by estoppel

The capital contribution of a partner may consist in all of the following except

business experience

What is the form of business organization that is subject to the most regulation at the state and federal level?

corporation

Any change in the identity of the partners, whether through death, withdrawal, or the adding of a new partner, results in the ______ of the old partnership.

dissolution

A joint venture cannot sue or be sued

false

A limited partnership has to have at least two general partners and at least one limited partner

false

A partner's capital contribution may consist in business experience or service to the firm

false

A partnership is a taxable entity.

false

Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business

false

Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business.

false

An incoming partner has unlimited personal liability for the already existing debts of the partnership.

false

Debbie, the manager of a large furniture store, receives a bonus each year equal to 2% of the business' net profits. Under RUPA, this is conclusive evidence that Debbie has a partnership interest in the business.

false

If a partner assigns his or her interest in a partnership to a creditor, the assignee steps into the shoes of the partner and becomes entitled to participate in the management of the business.

false

If a personal creditor of Partner A wants to attach A's partnership interest in satisfaction of the debt, he would do so through a marshalling order.

false

In a closely held corporation, the shareholders will be personally liable for torts committed by employees of the corporation if committed while carrying out their employee duties.

false

Marshaling of assets is the tax doctrine that allows income to be taxed only at the owner level and not at the organization level.

false

Partnerships are required to use the term "Company" in their names.

false

The owner of a limited liability company LLC has unlimited personal liability for the debts of the LLC.

false

The partnership must pay interest each year on the capital contributions of the partners.

false

A partnership whose primary purpose is to manufacture things or to provide services is a ____________partnership.

non-trading

What is the provision of the tax rule that makes income taxable only for the individuals who receive it, and not for the business entity that produces it?

pass through

A partner who does not participate in the management of the business is a ____ partner; a partner who participates in decisions and advises management, but whose partnership interest is not known to third parties is a ____ partner.

silent, secret

A partnership whose primary business purpose is the buying and selling of goods is a ________partnership.

trading

A Subchapter S corporation is taxed in the same way a partnership is taxed.

true

A limited partnership must have at least one general partner and one limited partner.

true

A new partner is liable only to the extent of his or her capital contribution for the already existing debts of the partnership

true

A partner in a trading partnership has the implied power to make warranties on goods sold by the partnership.

true

A partnership maybe created by an express agreement between the parties or it may be implied from their conduct.

true

Absent a contrary provision in the partnership agreement, all partners have equal rights in the management of the business.

true

If the partnership agreement does not state how long the partnership is to last, a partnership- at- will is created.

true

In a Limited Liability Company, the losses and profits pass through to the shareholders.

true

In a partnership for a term of years, each partner has both the power and the right to withdraw from the partnership at any time.

true

Investors favor using Limited Partnerships to invest in commercial real estate because they can use the depreciation of the property as a tax loss.

true

Legal capacity is the ability of an organization to sue and to own property.

true

One partner has the ability to veto the admission of a new partner into the business.

true

Partners are agents of the partnership and of the other partners individually

true

Partners have unlimited personal liability for the debts incurred by the partnership.

true

Partnerships typically buy life insurance policies on each partner in order to fund the required purchase of the partner's interest in the partnership when the partner dies.

true

Premiums paid by corporations for the health insurance it provides employees are tax-deductible expenses.

true

Shareholders of a corporation may also be employees of that corporation.

true

Shareholders of corporations pay taxes on the dividends distributed to them by the corporation.

true

The Tax Code does not allow corporations to deduct as expenses excessive or unreasonable compensation to officers and employee

true

The admission of a new partner automatically dissolves the partnership

true

The admission of a new partner automatically dissolves the partnership.

true

The capital contribution of a partner may consist in all of the following except

true

Under RUPA, a partnership may take title to real property as a tenancy in partnership

true

Unless agreed to otherwise, partners are not entitled to compensation for work done to further the interests of the partnership.

true

Usury laws do not apply to corporations when they borrow money

true

When a partnership ceases to exist, the process of reducing the firm's assets to cash, paying off the creditors, returning the capital contributions of the partners, and distributing profits is called ______.

winding up